LEE, MA -- (Marketwire) -- 11/09/11 -- Wave Systems Corp. (NASDAQ: WAVX), a leading provider of trusted computing software, today reported financial results for its third quarter (Q3) and nine months ended September 30, 2011. Wave's results for the 2011 periods include the results of operations of Safend Ltd. for the last eight days of the quarter. Safend is an award-winning endpoint data loss protection solutions provider acquired by Wave for stock and cash on September 22, 2011.

Wave's Q3 '11 total net revenues rose 42% to $9.5 million compared with $6.7 million in Q3 '10 and rose 18% over Q2 '11 total net revenues of $8.1 million. The higher total net revenue was primarily the result of a $2.3 million increase in enterprise server software licensing revenues over Q3 '10, reflecting the recognition of revenue from large enterprise contracts with BASF and a major global automaker, as well as a $0.5 million increase in revenue from new enterprise server upgrades. Net revenues in Q3 '11 included $274,000 in services revenue from a government services contract compared to Q3 '10 services revenue of $195,000. No services revenue was earned during Q2 '11. Wave's Q3 '11 results also include $156,000 of license revenues from Safend's operations for the last eight days in the quarter.

Total billings were $6.4 million in Q3 '11, versus $6.2 million in Q3 '10, and below Q2 '11 total billings of $9.4 million, which included a $3.5 million enterprise order from BASF SE. Q3 '11 total billings included a partial months billings from Safend amounting to $143,000. Total net revenues are reconciled to total billings below.

Wave continues to make substantial investments in both sales and marketing and R&D initiatives, as it views expanding the Company's global footprint and brand awareness and extending its range of software solutions and capabilities as critical components in growing the business. In aggregate, SG&A and R&D expenses rose by $1.1 million or 11% over Q2 '11 levels and by $3.5 million or 48% over Q3 '10. Of Wave's total Q3 '11 SG&A and R&D costs, $199,000 is attributed to eight days of Safend operations, and $405,000 relates to non-recurring legal and other costs for the Safend acquisition. Wave has steadily increased its investment over the past four quarters to expand its sales, marketing and engineering teams and resources. The Board believes such investments are integral to nurture OEM relationships, to build product and brand awareness, to expand direct-sales activity on a global basis, and to develop new products and features that address the security needs of the growing array of mobile devices used by enterprises.

With the expansion of its personnel base, Wave's non-cash stock-based compensation expense has nearly doubled to $1.4 million in Q3 '11 as compared to Q3 '10 and in line with the level in Q2 '11. Stock-based compensation remains an important component of Wave's employee recruitment and retention strategy.

Wave recorded a Q3 '11 net loss of $1.8 million, or $0.02 per basic and diluted share. Q2 '11 also resulted in a net loss of $1.8 million, or $0.02 per basic and diluted share. Wave's year ago Q3 net loss was $1.2 million, or $0.01 per basic and diluted share. Per-share figures are based on a weighted average number of basic shares outstanding during Q3 '11 and Q3 '10 of 83.7 million and 80.9 million, respectively, and 82.9 million in Q2 '11.

Wave recorded negative EBITDAS of $0.3 million in Q3 '11, roughly in line with Q3 '10 and Q2 '11 levels. Wave reports EBITDAS, a non-GAAP measure defined as earnings before interest income (expense), income taxes, depreciation and amortization and stock-based compensation expense, in order to highlight its operational performance on a cash-flow basis. A reconciliation of net loss to EBITDAS is presented below.

With the purchase of Safend, Wave's consolidated balance sheet now includes $3.8 million of goodwill and $8.8 million in newly acquired amortizable intangible assets, an increase from $1.0 million at year-end 2010. As a result, Wave's income statement is expected to reflect non-cash amortization expense of approximately $1.3 million per year or $338,000 on a quarterly basis going forward. Net of $1.1 million in cash paid in connection with the Safend acquisition, Wave's cash and cash equivalents were $6.9 million compared to $10.9 million at June 30, 2011 and $3.6 million at December 31, 2010. As of September 30, 2011, Wave's total current assets were $12.9 million and total current liabilities -- including the current portion of deferred revenue of $5.8 million -- were $11.6 million.

Wave CEO Steven Sprague commented, "Beyond solid execution in the business and another quarter of record revenues, Wave made significant progress during Q3 in expanding the scope of its operations in the U.S. and abroad. Of particular significance, late in Q3 Wave completed the acquisition of data loss protection provider, Safend. The transaction provides Wave with a wealth of complementary products and features, a broad customer base, a talented team and new distribution channels. With first half 2011 revenues of $2.9 million and a $1.9 million net loss, we believe Safend has the scale and industry recognition to make meaningful contributions to Wave's growth. We also see medium-term opportunities for marketing synergies and operational efficiencies to drive improved bottom line contributions from the combined companies.

"Wave also expanded in Europe, the Middle East and Africa (EMEA), recruiting experienced industry personnel such as respected IT security veteran Joseph Souren as VP and General Manager for EMEA. The expanded presence of an in-market team puts Wave in a stronger position to develop and pursue customer opportunities in these regions, particularly Europe.

"Cyber-security threats continue without pause, with regular reports of new data, network and identification breaches causing disruption, embarrassment, financial damages, liability and lost revenue," Sprague added. "This made it particularly gratifying to see the NSA's Trusted Computing Conference in late September so well attended and successful in its mission to educate public and private sector IT professionals on trusted computing solutions and how they are being successfully implemented.

"Wave has been an early leader in building solutions to address these issues, and with each passing day we gain further confidence in our strategy. Accordingly, we believe it is important that we continue to make significant investments in our business and product development strategy."

Wave Launches Endpoint Monitor, the first solution to utilize a Trusted Platform Module (TPM) to detect and mitigate malware and other Advanced Persistent Threats (APTs) lurking in host systems and accessing confidential data. Wave Endpoint Monitor ferrets out APTs by scanning a system's environment, before the operating system loads, to identify the possible presence of malware. (September 2011)

About Wave Systems Wave Systems Corp. reduces the complexity, cost and uncertainty of data protection by starting inside the device. Unlike other vendors who try to secure information by adding layers of software for security, Wave leverages the security capabilities built directly into endpoint computing platforms themselves. Wave has been a leading expert in this growing trend, leading the way with first-to-market solutions and helping shape standards through its work as a board member for the Trusted Computing Group.

Safe Harbor for Forward-Looking StatementsThis press release may contain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), including all statements that are not statements of historical fact regarding the intent, belief or current expectations of the company, its directors or its officers with respect to, among other things: (i) the company's financing plans; (ii) trends affecting the company's financial condition or results of operations; (iii) the company's growth strategy and operating strategy; and (iv) the declaration and payment of dividends. The words "may," "would," "will," "expect," "estimate," "anticipate," "believe," "intend" and similar expressions and variations thereof are intended to identify forward-looking statements. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Wave assumes no duty to and does not undertake to update forward-looking statements.

Non-GAAP Financial Measures: As supplemental information, we provide the non-GAAP performance measures that we refer to as total billings and EBITDAS. Total billings is provided in addition to, but not as a substitute for, GAAP total net revenues. Total billings means the sum of total net revenues determined in accordance with GAAP, plus the increase or minus the decrease in deferred revenue. We consider total billings an important measure of our financial performance, as we believe it best represents the continued increase in our software license upgrades. Total billings is not a measure of financial performance under GAAP and, as calculated by us, may not be consistent with computations of total billings by other companies. EBITDAS is defined as net income (loss) before interest income (expense), income taxes, depreciation and amortization and stock-based compensation. EBITDAS should not be construed as a substitute for net income (loss) or net cash provided by (used in) operating activities (all as determined in accordance with GAAP) for the purpose of analyzing our operating performance, financial position and cash flows, as EBITDAS is not defined by GAAP. However, we regard EBITDAS as a complement to net income (loss) and other GAAP financial performance measures, including an indirect measure of operating cash flow.